United Arab Emirates

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Overall rating is Provisionally Largely Compliant

United Arab Emirates has been reviewed under the fast-track procedures and assigned provisional overall rating. United Arab Emirates will be scheduled to undergo a full review under the strengthened 2016 Terms of Reference in the near future.

Table of Determinations and Ratings of the
Phase 2 Review

Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. (ToR A.1)

Determination

Factors

Recommendations

The element is in place, but certain aspects of the legal implementation of the element need improvement.

It is not clear that foreign companies having their main offices or effective management in the Dubai Airport Free zone are obliged to maintain ownership information or provide it to the authorities and thus such information may not be available to the competent authority.

The UAE should clarify that ownership information is available for foreign companies having their main offices or effective management in the UAE in all cases.

Identity information may not be consistently available in respect of foreign trusts which have an administrator or trustee in the UAE or in a free zone other than the DIFC.

An obligation should be established to maintain information in all cases in relation to settlors, trustees and beneficiaries of those foreign trusts which have an administrator or trustee in the UAE or in a free zone other than the DIFC.

Phase 2 Rating

Factors

Recommendations

Largely Compliant.

Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2)

Determination

Factors

Recommendations

The element is in place, but certain aspects of the legal implementation of the element need improvement.

Under the federal Commercial Transactions Law (CTL) entities in the free zones other than financial free zones are required to keep reliable accounting records, including underlying documentation, for a period of at least five years. However, the legislation in most free zones analysed varies from the CTL.

The UAE should clarify that all entities in the free zones are required to keep reliable accounting records, including underlying documentation, for a period of at least five years.

The requirements to keep underlying documentation by DIFC entities other than entities regulated by the financial regulator are worded in a general way and do not go into detail regarding the type of underlying documentation to be kept, which could result in an uneven application of the obligation to keep underlying documentation.

The UAE should elaborate its requirements that underlying documentation must be kept in respect of all relevant entities and arrangements in the DIFC.

UAE and free zones legislation (with the exception of the DIFC) do not ensure that reliable accounting records or underlying documentation are kept for foreign trusts with a resident administrator or trustee.

The UAE and free zones laws should expressly provide for keeping of complete accounting records, including underlying documentation, for at least five years for foreign trusts with resident administrators or trustees.

Phase 2 Rating

Factors

Recommendations

Partially Compliant.

There is no regular oversight with respect to the obligation on partnerships to keep reliable accounting records, including underlying documentation.

The UAE should implement a system of oversight to ensure that all partnerships keep reliable accounting records, including underlying documentation, in practice.

Even though they are required to have their accounts audited, without any regular checks by a free zone or federal government authority there is insufficient assurance that reliable accounting records are kept by offshore companies in the Jebel Ali Free Zone. With respect to offshore companies in the RAK Free Zones, compliance with accounting record keeping obligations is not monitored at all.

The UAE should implement a system of oversight to ensure that offshore companies in the Jebel Ali Free Zone and the RAK Free Zones keep reliable accounting records, including underlying documentation, in practice.

The UAE has not exchanged accounting information in all cases where it was requested and it is not clear that the information would have been available.

The UAE should monitor the availability of accounting information, and in particular underlying documentation, where this is requested by an EOI partner.

Banking information should be available for all account-holders. (ToR A.3)

Determination

Factors

Recommendations

The element is in place.

Phase 2 Rating

Factors

Recommendations

Compliant.

Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (ToR B.1)

Determination

Factors

Recommendations

The element is in place, but certain aspects of the legal implementation of the element need improvement.

The process and procedures for the other government authorities to provide information for EOI purposes to the Ministry of Finance has not been specified where no MoU has been concluded between the Ministry of Finance and the relevant authority. Although many MoUs are currently in place, no MoUs exist yet with the Departments of Economic Development, which collect information on UAE entities that are not in the free zones. In addition, no access powers have been identified in the Fujairah Free Zone.

The UAE should specify the process and procedures by which the most relevant government authorities are required to provide information for EOI purposes to the Ministry of Finance when requested to do so and clarify that access powers are available in all instances.

Except for lawyers who are asked to produce information by the DIFC authorities, the scope of legal professional privilege appears to extend beyond that provided for in the international standards.

The UAE should ensure the application of legal professional privilege does not limit or prevent it from responding to a request for information made pursuant to an international exchange of information request.

Phase 2 Rating

Factors

Recommendations

Partially Compliant.

Information with respect to free zone entities is currently not centralised. As a result, the amount of specificity necessary for the Competent Authority to access information that relates to free zone entities forms an impediment to effective EOI in some cases, as information cannot be obtained only on the basis of the name of the company in these cases.

The UAE should ensure that information is accessible to its Competent Authority in all cases where the name of the company has been clearly identified by the requesting jurisdiction.

Peer input suggests that in many cases only partial information was obtained by the UAE Competent Authority. This raises questions with respect to the effectiveness of the process of obtaining information through local authorities, which are not used to dealing with EOI requests for tax purposes and have little or no expertise in this area. It may therefore be very difficult for them to determine which information and documents are meant to be obtained. Although the UAE has already taken steps to improve the situation, this is still work in progress.

The UAE should ensure that the collaboration with the local authorities does not impede effective EOI, and in particular that its Competent Authority includes all relevant details in its request to a local authority to obtain information for EOI purposes (without compromising confidentiality), so all requested information can be obtained.

It is clear from peer input that in a significant number of cases received during the three-year review period not all information was obtained, for example because of the issues raised under elements C.1 and C.5. It is therefore unclear whether access and compulsory powers could have been exercised in all cases where this would have been required.

The UAE should monitor that its access and compulsory powers are effective in all cases where information should be obtained under the relevant tax information agreement.

The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (ToR B.2)

Determination

Factors

Recommendations

The element is in place.

Phase 2 Rating

Factors

Recommendations

Compliant.

Exchange of information mechanisms should provide for effective exchange of information. (ToR C.1)

Determination

Factors

Recommendations

The element is in place, but certain aspects of the legal implementation of the element need improvement.

The UAE’s arrangements providing for international exchange of information have not been given full effect through domestic law as the extent of the authorities’ access powers has not been clearly specified in all cases.

It is recommended that the UAE ensure it has complete legislation enabling it to give full effect to its EOI agreements.

Phase 2 Rating

Factors

Recommendations

Partially Compliant.

It was standard practice to include a reference to the equivalent of paragraph 26(3) of the OECD Model Tax Convention in its response letters, irrespective of whether all information was exchanged or not. In general, the objective of information exchange is to ensure that all foreseeably relevant information does get exchanged. Declining to provide certain information on ‘face value’ because it would fall under Article 26(3)(b) does not match with this objective. It is not unlikely that in many of the cases additional information is available with the requesting jurisdiction which would enable the UAE to obtain the information.

It is recommended that the UAE only declines to provide information on the basis of the equivalent of Article 26(3) of the OECD Model Tax Convention where this has been clearly established after consultation of the requesting jurisdiction.

The element is in place, but certain aspects of the legal implementation of the element need improvement.

Delays have been experienced in negotiating EOI agreements and/or the time taken by the UAE between initialling and signing an EOI agreement.

The UAE should, expeditiously, enter into agreements for exchange of information (regardless of their form) with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement with it.

Phase 2 Rating

Factors

Recommendations

Largely Compliant.

The jurisdictions' mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3)

Determination

Factors

Recommendations

The element is in place.

Phase 2 Rating

Factors

Recommendations

Compliant.

The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4)

Determination

Factors

Recommendations

The element is in place.

The definition of information subject to legal professional privilege in the UAE’s DTCs follows that of its domestic law, which is wider than the scope accepted under the international standard.

The UAE should ensure that the scope of legal professional privilege in its EOI mechanisms is consistent with the international standard.

Phase 2 Rating

Factors

Recommendations

Compliant.

The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5)

Determination

Factors

Recommendations

The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.

Phase 2 Rating

Factors

Recommendations

Non-Compliant.

The absence of any organised process for the handling of requests in the first two years of the review period had an adverse impact on effective EOI, as only very few EOI requests were processed at that time. The establishment of the EOI unit continues to be a work in progress and there remains a backlog of unanswered requests.

The UAE should continue with its efforts to fully establish its EOI unit, particularly with its plans to increase the staffing of the unit, and to address the backlog of requests on an urgent basis.

The UAE’s EOI partners have reported difficulties in communicating with the UAE Competent Authority. This includes cases where the UAE did not provide certain information on the basis of the equivalent of Article 26(3) of the OECD Model Tax Convention. The UAE has made efforts to facilitate discussions with key partners since the establishment of the EOI Unit.

The UAE should increase its efforts to discuss and understand issues raised by its EOI partners through direct communication, including the provision of status updates. The UAE should also engage in a dialogue in cases where it intends not to provide the information.